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Source: www.asiaecon.org |

RUSSIA'S AUTO WOES


In 2007, Russia had big plans for 2008 as it attempted to become the number one auto producer in Europe. Instead, Russian banks stopped issuing loans, and the aspiration to become number one ended up dropping to fourth place. Now in 2009, the Russian auto industry is scrambling to get back on its feet as companies are threatened and job losses are piling up.


In 2007, Russia had big plans for 2008 as it attempted to become the number one auto producer in Europe. Instead, Russian banks stopped issuing loans, and the aspiration to become number one ended up dropping to fourth place. Now in 2009, the Russian auto industry is scrambling to get back on its feet as companies are threatened and job losses are piling up.

AvtoVAZ, Russia’s largest car maker with headquarters in Tolyatti, is struggling mightily, and the entire city is feeling the repercussions. National car sales have plummeted by 33 in January, compared to last year, and wages have shrank. Banks have raised interest rates upward of 25 percent forcing AvtoVAZ to increase their car prices.

The rise in car prices have stunted production and factory workers are feeling the consequences. The parking lot outside the factory is filled with 90,000 finished vehicles waiting for buyers, while the company is throwing anti-crisis parties to raise moral. Many of the plant’s 108,000 workers are only working six-hour shifts, four days a week, instead of the usual eight-hour shifts, five days a week. In January the entire plant shut down to allow demand to catch up to production. At the same time last year, around 450 cars were produced a day; now the total is 250 cars a day. The average monthly salary for a worker on the production line has dropped from 16,000 rubles to 10,000.

Local car dealers are being affected as well. Sales have dropped by up to 90 percent in Tolyatti. “We used to sell up to 1,000 cars [a month], now we sell only 100,” said Magomed, a Tolyatti car dealer. “The banks don’t give out loans, and people who do have some savings under their mattresses are waiting for the cars to become cheaper. It’s stupid—it will never happen.” Instead of becoming cheaper, the factory prices are increasing. The price for Lada Priora, the newest and most expensive model, has increased from 271,000 rubles to 275,000 and then again to 277,000 rubles. On average, AvtoVAZ has raised its prices by 2.4 percent.

Car parts suppliers are growing increasingly irate as AvtoVAZ now owes 15 billion rubles ($541 million) in back payments. One supplier, Tenneco Automotive Volga, has threatened to take AvtoVAZ to court to claim its debts. Tenneco has been forced to lay off 44 of its 87 local staff members in December because of AvtoVAZ’s nonpayments. Some suppliers have refused to take on additional promissory notes and instead halted supplies. AvtoVAZ has even continued to produce cars when certain components are lacking. According to one employee, “One day we produced some cars without electric generators.”

The impact of AvtoVAZ’s troubles are immense. About 320 enterprises employing 150,000 people in and around Tolyatti depend of the fledgling company. One in seven adults are employed by AvtoVAZ. As wages are being withheld and layoffs are increasing, spouses are increasingly being forced into work. Women are facing an uphill battle as 65 percent of those registered as unemployed in Tolyatti are female, and they only qualify for 30 percent of the vacancies. The unemployment rate has doubled since October to 4,220 people, but the true rate is believed to be much higher. Many workers have become discouraged by the prospects in Tolyatti and have not registered as unemployed or are not bothering to search for work.

AvtoVAZ and Tolyvatti are not giving up hope. AvtoVAZ is continuing to invest in brand management. Despite its huge debts, AvtoVAZ will spend 2.5 million euros ($3 million) to participate in the World Touring Car Championship. The government has started subsidizing loans by covering two-thirds of the Central Bank’s interest rate. At a current rate of 13 percent, car buyers can get a loan for only 5.9 percent instead of the actual 14.6 rate. The government has also promised 43.7 billion rubles ($1.2 billion) to be used for creating new jobs and retraining workers. Tolyvatti technical colleges have already prepared programs for unemployed workers looking to retrain and re-enter the work force. However, not many people have signed up for the retraining programs. Many people are living off their savings and waiting for the economic situation to improve.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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